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10/10/2018 — Oil and Gas
Z responds to PM on price rorting
By Ross Louthean

The growing elephant in the room for New Zealand politics is the escalating price of petrol and it’s clear the Government which is partly responsible for the situation now understands this.

Z Energy Ltd (NZX & ASX: ZEL) made a comment to BusinessDesk yesterday, claiming it has not increased its petrol margins over the past year, following Prime Minister Jacinda Ardern's attack on petrol retailers' pricing.

Chief executive for Z Energy, Mike Bennetts, was responding to the PM’s claim that motorists were being fleeced because Ardern claimed evidence showing petrol price margins had blown out at the same time as higher international oil prices and a new regional fuel tax had raised prices to historic highs of around $2.50 per litre for 91 octane fuel.

It’s fascinating because oil prices have steadily climbed to improve the solvency of the oil and gas exploration industry, particularly in NZ where the Government took an arbitrary decision of pandering to Greenpeace and other anti-development groups. This happened despite warnings from involved departments that preventing new offshore oil permits would damage the economy and jobs.

The price at bowsers were going to steadily increase and the Government’s decision to allow a regional fuel tax has helped fuel this problem, and the loss of business confidence and incentive to explore will only aggravate the problem at petrol bowsers.

Mike Bennetts spoke to BusinessDesk about doubt on Ardern's figures, which claimed a 9.8¢ per litre expansion in importer margins, based most probably on data routinely collected by the Ministry for Business, Innovation and Employment. The series, he said, is known for its volatility and tendency to be revised.

“If I go back to the potential fact sources at the heart of whatever claim is being made, I'd stress that it is provisional and it does get updated,” Bennetts claimed.

“The provisional data is inconsistent with Z's own experience, which will be made public when we announce our results for the half-year in the first week of November.”

Ardern had said the Government would fast-track legislation in the next two sitting weeks of Parliament to give the competition watchdog powers to require companies to provide it with commercial information for studies into competitiveness in a market.

Bennetts acknowledged Z's support for a study by a well-informed and experienced group of people, with access to all the necessary data and an understanding of the dynamics in the marketplace, would sound “a bit like blah blah” to motorists.

However, an investigation by the previous government and published in May 2017 had been hampered by constraints on time, access to data and “the experience of people of the dynamics of our market.”

BusinessDesk said at the time of that investigation, undertaken by external economic consultants for MBIE, Z was known to have invested heavily in responding to information requests and its largest competitor, BP New Zealand had been compliant. However, Mobil was not forthcoming with information and Gull Petroleum claimed to be unable to provide data in the form reviewers sought.

A Commerce Commission-led market study would be empowered to require companies in a sector both to provide data in a consistent form.

BusinessDesk said even if started immediately after passage of the legislation, the outcome of a market study would not be known until well into next year, but Ardern may be hoping that by attacking petrol retailers, they will rein in margins in response to growing political sensitivities.

Commentator Gordon Campbell on the Werewolf website, said that in the US with rising petrol prices the Trump administration has become alarmed that angry US motorists could take it out on Republican lawmakers in the upcoming midterm elections.

So, this week, the White House has been frantically issuing waivers to the likes of South Korea and India, to allow them to buy Iranian oil. The Saudis are also offering to release more stored oil onto the market.

Campbell said these stop gap measures could offer some relief for Kiwi motorists over the summer from the worst case scenarios ($US100 a barrel for Brent Crude) about where global oil prices are headed.

Since oil is traded in $US, no NZ Government can do much to control the price of imported oil at the pump.

He said that offshore aspect though, barely got a mention by Jacinda Ardern at yesterday’s press conference. The Government has copped a lot of flak, as if the annual petrol tax increases and Auckland regional fuel tax have been the main drivers of those cost increases at the pump.

“Certainly both the excise tax increase and Auckland’s regional fuel tax – which are earmarked to deliver direct returns to motorists via reduced congestion and road safety improvements – play into the stereotypes about ‘tax and spend’ centre-left governments,” Campbell said.

Arden argued that in 2008, NZ had one of the lowest pre-tax costs for petrol in the OECD. “Today, New Zealand has the highest pre-tax costs for fuel in the OECD.”

She claimed the taxes themselves have not been involved in this cost reversal. Between 2008 and 2016, the margins that importers were taking for themselves more than doubled, to 16% – thus entailing a transfer of “hundreds of millions of dollars a year” from consumers to producers.

On the proposal for a Commerce Commission study into the competitive workings of the NZ oil industry, Campbell claimed the competition watchdog currently lacks power to initiate its own investigations into how effectively competition is functioning.

As of mid-2018, he said, both the National Party and Business NZ were resisting the Commission staff being enabled to launch such investigations off their own bat.

“It will be interesting to see if National continues to hold that line, and votes against the Commission’s ability to be a self-starter on initiating work of benefit to the consumer, by fostering the competitive workings of the market,” he added.

Sources: businessdesk.co.nz; werewolf.co.nz; nzresources.com

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Z Energy’s Mike Bennetts. Photo: NBR.