Submission. Parliamentary Select Committee on PRICING, REFINING, STORAGE AND SUPPLY OF FUEL IN SOUTH AUSTRALIA. March 2007

Transcription

1 Submission to Parliamentary Select Committee on PRICING, REFINING, STORAGE AND SUPPLY OF FUEL IN SOUTH AUSTRALIA March 2007

2 Introduction The Royal Automobile Association of SA Inc (RAA) is the State s peak non-government body representing motorists. Our 560,000-plus members 27 per cent of whom reside in regional SA, look to the RAA to represent their interests on a broad range of motoring-related issues, in particular fuel. The RAA provides a fuel advisory and information service to RAA Members, the general public, media, stakeholders, industry groups, private companies and government agencies. This is supported by a comprehensive website, which provides detailed information on all matters relating fuel, including: The cheapest Adelaide fuel locations (updated daily in the morning and afternoon) Daily, weekly, monthly and yearly petrol, diesel and LPG price data Industry background, pricing and taxation fact sheets and FAQ responses Detailed fuel supply and demand analysis Current issues and breaking news Links to relevant industry sites and sources; and A direct question function. The RAA currently allocates one full-time employee to fuel related issues increasing to two full-time employees when necessary. As part of this function, the RAA collects and analyses the following fuel information: Daily crude oil price in US dollars Daily Australian exchange rate Adelaide average daily ULP, Diesel and LPG price Daily Terminal Gate Prices (TGP) - ULP and Diesel Refining reference price for ULP, PULP and Diesel Daily Singapore parity price (MOGAS) in Australian dollars for ULP and Diesel Adelaide monthly average for each fuel type (ULP, PULP, Diesel and LPG) Monthly average ULP price for 10 regional South Australian towns Through analysis and data manipulation, the RAA provides fuel related information to its members, the general public, media, other motoring clubs around Australia and the world, industry stakeholders and private industry. Somewhat disappointingly, even government agencies approach the RAA for current and historical data (eg ATO, Treasury and local government), despite the Australian Competition and Consumer Commission currently collecting this data. Notwithstanding the above, the RAA would like to collect the additional following information from industry or government: Weekly (or preferably daily) fuel prices and volumes for major country centres; Daily TGP for all South Australian storage facilities; and Weekly fuel supply levels across the state. On average, the RAA fuel website attracts around 200 daily hits and the Public Affairs Unit receives approximately ten phone calls per day from RAA members and the public on fuel - related issues. During peak periods (such as experienced recently with higher petrol and diesel prices) the Public Affairs Unit would take one telephone call every five minutes and receive media and stakeholder enquiries per day. 5 th March 2007 Page 1 of 7

3 Combined with the results from extensive member surveys (Australian National Opinion Polling), RAA members are indicating that rather than forgo driving as a result of higher petrol prices, motorists are choosing not to spend money on entertainment, food and other essential items. What the RAA believes in The RAA believes that market forces should dictate the price of petroleum-based products reflecting their cost of production, the cost of supplying products to different markets, and the degree of competition that exists in those markets. A free and open competitive market for petroleum products best serves the interests of consumers. The RAA also calls for the Federal and State governments to monitor the industry and relevant markets to ensure that the government concerned has the information upon which to formulate effective policy. This includes more effective and timely monitoring and communication of fuel price, volume and storage information; greater inclusion and consultation with the RAA and national autoclubs in policy and legislative decision making processes in regard to fuel; and streamlined and responsive complaints investigation and resolution processes. Government legislation and policy should be directed towards ensuring that all sections of the oil industry in Australia (refining, wholesaling, distribution and retailing) operate in a transparent and competitive manner. In addition, the RAA advocates the following: The recommendation of the 2001 ACCC Inquiry Reducing Fuel Price Variability against legislating to eliminate or reduce price cycles given these price cycles enable consumers to buy fuel at lower prices overall A transparent Terminal Gate Pricing system for all fuels Governments must monitor and effectively investigate metropolitan and country retail and wholesale fuel prices in order to address unjustifiable and excessive differences, eliminate market deficiencies, and ensure all fuel price subsidies are passed on to end consumers Government must ensure adequate supply of fuel to meet the needs of South Australian motorists; and The RAA is concerned by the burden that higher rural fuel prices place on motorists, however, retail price capping is not supported as it may act to restrict competition and result in even higher prices. Overview of the SA Fuel Market As at August 2005, there were 1,189,483 registered motor vehicles and motorcycles in South Australia with 14.4mil motor vehicles, including motorcycles, registered in Australia at 31 March As at end 2000, there was 807 service stations in South Australia (312 Metro / 495 Country), with the majority in the city owned by oil companies or under franchise and most country stations supplied by distributors. Average daily demand for petrol and diesel in SA is 7.1ML (plus 0.5ML for fet fuel). During peak periods (Christmas and December Harvest) demand for fuel jumps by between 10 30%). 5 th March 2007 Page 2 of 7

4 The majority of South Australia s LPG requirements are distributed from Santos Port Bonython facility, piped from the Cooper Basin. LPG is then trucked around the State by several carriers directly to service stations. The RAA understand that during the shut down of Santos facilities last year due to fire, LPG was trucked in from interstate. Since the closure of the Mobile Port Stanvac refinery, and as predicted by Mobil prior to the closure of the facility, South Australian motorists pay at most a 1cpl premium on petrol. Adelaide motorists enjoy a distinct discount cycle, which at the moment operates with cheap petrol available on Tuesday and into Wednesday morning (refer diagram 1). Motorists can enjoying a saving of up to $200 per annum by taking advantage of the discount cycle. Diagram 1 Adelaide s ULP Weekly Discount Cycle cpl Thursday Friday Saturday Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sunday Monday Tuesday Wednesday February 1 st 2007 February 28 th 2007 SA motorists pay approximately $300million per annum to the State Government through GST on fuel and close to $1.2billion to the Federal Government through Fuel Excise. What the RAA believes is currently lacking 1. The willingness to act on behalf of motorists - State and Federal governments have not taken action (to either investigate or prosecute) recent significant profit margin increases within the fuel industry in Australia, either through the ACCC or State government agencies. Increased Refinery Margins September/October 2005 In September 2005, while crude oil prices reached record levels in international markets of over US$70 per barrel, prices proceeded to fall relatively quickly to stabilise at around US$64 per barrel. However, while the price of crude oil was driven up by US$5 per barrel as a direct result of damage in the US from Hurricane Katrina, the price of a barrel of ULP rose by US$20 a barrel over the same period. This meant that for a sustained period over September and October, oil company refineries reaped a windfall profit gain of $15US per barrel, which equates to around an additional 15cpl for motorists across Australia. On several occasions during 2006, refinery margins also increased significantly as illustrated in Diagram 2. 5 th March 2007 Page 3 of 7

5 Diagram 2 Increasing Refinery Margins Tapis Oil Price (A$ cpl) Tapis Oil Price (left axis) v Adelaide Ave ULP Price (right axis) (in Australian cents per litre) Adelaide Ave ULP Price (A$ cpl) 30 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Tapis Oil ($A cpl) Adelaide Ave ULP ($A cpl) State and Federal government responses blame international supply and demand, with the Federal Rural and Regional Affairs and Transport Committee investigating Australia s Future Oil Supplies and Alternate Transport Fuels and recommending further research. RAA response Provide comprehensive submission to the Federal Rural and Regional Affairs and Transport Committee Inquiry into this issue, attendance at the National Petrol Summit in Sydney 2005 and the Alternative Fuels Summit in Sydney in 2006, launch the Sunday Mail/RAA Petrol protest, lobbied State and Federal politicians and the oil industry to return windfall gains to suffering motorists and closely monitor fuel prices, and continue to release evidence of excessive price gauging within the media, stakeholders and South Australian motorists. Country Petrol Rip Off October 2005 present The RAA highlighted in 2005 and 2006 that the gap between city and country petrol prices had reached (and in many cases maintained) record margins since October Data indicates that this has been happening across much of regional Australia. The figures below highlight the massive increases still being experienced in SA: Table 1 - City v Country average ULP price differential Location 3 Year Average ( ) 2006 Average 2007 Average (ending February) Ceduna 8.1cpl 9.8cpl 12.2cpl Mt Gambier 4.7cpl 6.6cpl 6.1cpl Port Augusta 3.4cpl 4.8cpl 5.7cpl Port Lincoln 3.3cpl 4.8cpl 8.7cpl Victor Harbor 2.8cpl 5.0cpl 7.0cpl Whyalla 4.6cpl 8.3cpl 7.6cpl 5 th March 2007 Page 4 of 7

6 Diagram 3 - City v Country average ULP price differential Variation in regional ULP margin since January Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 cpl Ceduna Mt Gambier Pt Augusta Pt Lincoln Victor Harbor Whyalla RAA response Identify and publicise the massively inflated country petrol margins, forward analysis to the ACCC, provide submission to the Federal Rural and Regional Affairs and Transport Committee investigation into Australia s Future Oil Supplies and Alternate Transport Fuels and continue to pressure the oil industry to lower petrol prices. State and Federal government responses ACCC still unwilling to investigate; no response from the State government. 2. A lack of openness and transparency in South Australian fuel supply capacity. Several events over recent months have highlighted shortfalls in maintaining South Australian fuel supply continuity, which require better monitoring or structural adjustment to storage levels. Overview of fuel storage arrangements in SA Three facilities operate at Birkenhead M Berth at Port Adelaide, that supply fuel to South Australian motorists. Birkenhead holds some 158ML of fuel petrol, diesel and jet fuel. Small amounts of fuel is trucked into SA (South East), but the majority of fuel is shipped in, with Birkenhead M Berth receiving 7 tankers per month (compared to 1 per month before Stanvac was decommissioned). Port Lincoln holds around 7ML of petroleum product and Mt Gambier 2.5ML. Some minor storage facilities also exist around the State, operated by private companies to meet their own fuel requirements. Unlike other states, no independent fuel retailers in SA operate any fuel storage capacity. A summary of the storage figures is outlined in Table 2. 5 th March 2007 Page 5 of 7

7 Table 2 SA Fuel Storage Figures SA Fuel Storage Capacity Birkenhead M Berth (Pt Adelaide) Port Stanvac Petrol Diesel Jet Fuel Finished product Fuel Storage Capacity 86.7ML 55.4ML 16ML 120ML Average SA daily fuel demand 4.1ML 3.0ML 0.5ML N/A Max. days storage by oil co days days days days Min. targeted storage policy by oil co. 3-5 days 3-5 days 3-5 days N/A Max. vessel handling capacity 40,000 dead weight tonne (DWT) 250,000 DWT Recent fuel supply shortages in South Australia Late 2006 RAA was informed by the Office of the Technical Regulator (SA Government Agency which monitors fuel supplies in SA) that diesel supplies were on contract consignment only meaning diesel was only being supplied out of Birkenhead to wholesalers who had contracts with the oil companies. November RAA was informed by the Office of the Technical Regulator (SA Government Agency which monitors fuel supplies in SA) that some service stations in Adelaide had run out of Premium Unleaded (PULP). Further investigation identified that due to a shutdown of the BP refinery in Perth, PULP was in short supply in Adelaide and would remain this way for up to 7 days. October RAA was advised that the fuel storage facility at Birkenhead was running low on petrol supplies due to shipping delays, with a vessel arriving just in time to prevent widespread fuel outages. RAA understands that only a handful of bowsers ran out of petrol. RAA provided information to SA motorists on the status, ensuring orderly purchasing patterns continued and preventing panic buying. Harvest 2005 The RAA was informed of isolated diesel shortages across South Australia due to high demand for fuel during the harvest period. RAA position The RAA believes that the Birkenhead fuel storage facility has the ability to meet the fuel requirements of SA, but at present the facility is not being used to its maximum workable capacity, with fuels generally being stocked on a 5-10 day supply basis. Given recent incidents, the operators of the Birkenhead facilities must operate in the best interest of the State, by maintaining a minimum level of fuel in storage at any one time. As a member of the International Energy Agency (IEA), the RAA understands that member countries must maintain 90 days of reserve fuel at any point in time. While this quantity is required Australia wide, South Australia could barely operate for more than 10 days without fuel deliveries. RAA response RAA provided valuable information to South Australian motorists to prevent panic buying, identified and informed the State Government of fuel shortages, and continues to put public pressure on the State Government to ensure SA fuel needs are met. 5 th March 2007 Page 6 of 7

8 State and Federal government responses The RAA understands that the State Government established the Liquid Fuel Stocks Taskforce (LFSTF) in December 2003 to look at current fuel storage arrangements in SA. To date, the RAA has not received a copy of the LFSTF findings, nor was the RAA invited to provide input to the LFSTF. 3. A lack of effective competition between oil companies, particularly evident in the Melbourne and Adelaide petrol markets since mid-late Overview of metropolitan ULP prices 1999 present Refer attachment 1 Adelaide Metropolitan Unleaded Fuel Market Analysis The data analysed clearly demonstrates, from a retail price point, that the Adelaide ULP market is extremely competitive, with pricing trends very close to those of the much larger Melbourne and Sydney markets. Since the late 1990 s, the ULP price in Melbourne has averaged 1cpl to 2cpl less than the Adelaide and Sydney markets this may be due to the independent fuel storage facility which exists in Melbourne, however, there is no evidence to support this assumption. While not dismissing the creation of an independent storage facility or the reopening of the Port Stanvac Oil Refinery may provide some operators access to a lower wholesale price, analysis of the Melbourne market where an independent fuel storage facility does exist indicates that the potential benefit to South Australian motorists would only be in the vicinity of 1cpl to 2cpl. The RAA stands by its assertion that since the closure of the Port Stanvac Oil Refinery, South Australian motorists are being charged around a 1 cent premium per litre of ULP sold. Based on the RAA s statistical analysis, neither the re-opening of Port Stanvac (at the tax payers expense) or the adoption of the Perth Fuelwatch scheme will lead to reductions in the price of fuel in South Australia. Rather it is likely that a lack of competition within the oil industry Australia-wide is driving the price variations we have seen since mid These price anomalies are likely to be a combined result of world demand for fuel, increasing vehicle emission standards, refinery economies and the squeezing out of smaller wholesale operators across Australia. 5 th March 2007 Page 7 of 7

9 ATTACHMENT 1: METROPOLITAN UNLEADED FUEL MARKET ANALYSIS

10 Adelaide Metropolitan Unleaded Fuel Market Analysis A comparison of the unleaded (ULP) petrol market in the Adelaide, Melbourne and Sydney metropolitan areas from a retail price point. Data Overview Price data used by the RAA is obtained from three sources (FUELtrac, MotorMouth and Australian Institute of Petroleum) and compared for consistency. Overview of Data Suppliers FUELtrac Fuel price information in the Adelaide, Melbourne and Sydney metropolitan areas is supplied for analysis by FUELtrac the country s leading independent fuel price monitors, collecting and observing fuel prices at more locations than any other provider. FUELtrac collects daily pricing data from a variety of outlets across Australia, through electronic transactions (EFTPOS Network) and manual observations. FUELtrac acknowledges that monitoring fuel prices solely by electronic transactions does not provide a clear indicator of the current market situation, therefore, manual observations are conducted to eliminate any bias. More than 1 million fuel prices are recorded on a monthly basis nationally around 14,000 unleaded prices are captured in South Australia. MotorMouth Part of the Informed Sources group of companies currently reporting prices from approximately 3500 service stations on a daily basis across Brisbane, Sunshine Coast, Gold Coast, Sydney, Melbourne, Adelaide and Perth. MotorMouth operates independently of all oil companies and petrol stations, collecting data twice daily via visual inspection of price boards on designated routes. Australian Institute of Petroleum (AIP) The price information supplied by AIP is provided by ORIMA Research Pty Ltd. The information supplied by ORIMA is based on price information supplied by BP Australia, Caltex Australia Petroleum and Mobil Oil Australia. Market Overview Fuel prices in the three markets analysed (Adelaide metro, Melbourne metro, Sydney metro) follow a similar discount cycle, with unleaded petrol in each state at its cheapest on Tuesday and at its most expensive on Thursdays. Of the three states, Melbourne is the only state to have a sizable independent fuel storage facility. 5 th March 2007 Page 1 of 4

11 Analysis of 2006 (to September) price data The average monthly ULP price differential between Adelaide and Melbourne for the 9 months analysed was 0.37cpl, with Melbourne s average monthly ULP price cheaper in 5 of the 9 months analysed refer Figure 1. Figure 1 Average monthly price differential Average Monthly Price Differential (using Adelaide as the base) cpl Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Adelaide Melbourne Sydney Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Adelaide Melbourne Sydney Following a similar trend, when all daily prices other than the daily lows are eliminated and averaged, over the course of each month, the average monthly low price in Melbourne was lower than Adelaide s in 6 of the 9 months analysed refer Figure 2. The average differential between Adelaide and Melbourne over this period saw Melbourne s price 1.04cpl cheaper. Figure 2 - Average monthly low price differential cpl Average Monthly Low Price Differential (using Adelaide as the base) Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Adelaide Melbourne Sydney 5 th March 2007 Page 2 of 4

12 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Adelaide Melbourne Sydney However, despite Melbourne having a cheaper monthly average and a lower average monthly low in 5 and 6 of the 9 months analysed respectively, Adelaide recorded the lowest monthly price in 6 of the 9 months analysed, while Sydney recorded the lowest price per month in the remaining 3 months of the period analysed As illustrated by Figure 3. Figure 3- Lowest daily price recorded per month Lowest Daily Price Recorded per Month cpl Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Adelaide Melbourne Sydney Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Adelaide Melbourne Sydney Furthermore, of the 273 days analysed, each state recorded a considerable period where their ULP prices were unmatched by the other states. Adelaide recorded the lowest daily price on 96 occasions, Melbourne 101 occasions, Sydney 101 occasions. Figures, which reinforce a competitive discount cycle operates in each of the states with motorists being provided with a similar level of price discounting. (Note: totals do not equal as multiple states recorded equal lowest daily low). Viewing the data provided in a slightly different way, in 2005, the gap between the retail ULP price and the ULP import parity indicator price (IPIP) averaged 2.87cpl. This gap has continued to grow during 2006 from a historically high base of 5.38cpl in January 2006 to be averaging 5.90cpl for the first 9 months of the year. The growth in the gap is evidence that retail prices in Australia are not reflecting the price reductions from Singapore. 5 th March 2007 Page 3 of 4

13 In September 2006 alone, the national average gap between the ULP retail price and the IPIP averaged 9.35cpl 6.88cpl in Adelaide, 8.88cpl in Melbourne and 6.34cpl in Sydney refer Figure 4. Interestingly, the average price variation for the first 9 months of 2006 was 3.6cpl in both Adelaide and Melbourne and 3.0cpl Sydney. Figure 4 Average retail unleaded petrol price variation to the unleaded IPIP Variation in Ave Retail Prices and the IPIP cpl Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Adelaide Melbourne Sydney Australia Conclusion The data analysed clearly demonstrates, from a retail price point, that the Adelaide ULP market is extremely competitive, with pricing trends very close to those of the much larger Melbourne and Sydney markets. Since the late 1990 s, the ULP price in Melbourne has averaged 1cpl to 2cpl less than the Adelaide and Sydney markets this may be due to the independent fuel storage facility which exists in Melbourne, however, there is no evidence to support this assumption. While not dismissing the creation of an independent storage facility or the reopening of the Port Stanvac Oil Refinery may provide some operators access to a lower wholesale price, analysis of the Melbourne market where an independent fuel storage facility does exist indicates that the potential benefit to South Australian motorists would only be in the vicinity of 1cpl to 2cpl. The RAA stands by its assertion that since the closure of the Port Stanvac Oil Refinery, South Australian motorists are being charged around a 1 cent premium per litre of ULP sold. 5 th March 2007 Page 4 of 4