Download - NCA Petrol and Diesel Price Investigation
Investigation into Petrol and Diesel Price Movements
December 2008
Executive Summary
The National Consumer Agency is pleased to submit the following report in response to the Tanaiste’s request that “the Agency undertake a survey into why pump prices for petrol and diesel have not fallen in line with the drop in the wholesale price of oil”.
This report has been prepared over a short timeframe, between September and December 2008 by the in-house research function of the National Consumer Agency. In light of the time and resource restrictions, a decision was taken to limit the dataset for analysis to crude oil and downstream product prices between January and December 2008. Whilst analysis over a longer timeframe and using larger datasets may permit greater detail and facilitate identification of even small variances from trend, the NCA is confident that the general trends observable over the period under examination presents a fair reflection of the current state of the Irish consumer petrol and diesel market.
Based on the key findings of the research, the NCA has concluded that: There is little evidence to suggest unwarranted delays in the passing on of
wholesale price changes to the consumer at the pump. Direct comparison between fluctuations in crude oil prices and petrol and diesel
pump prices is inappropriate and does not reflect the reality of the petrol and diesel supply chain. To more accurately assess flow through of price changes in refined oil products (such as petrol and diesel) to the consumer, it is necessary to compare fluctuations in Platts prices, these being the prices for Refined oil products such as petrol and diesel paid by wholesalers, and prices at the forecourt pump.
Platts prices and wholesale prices should differ by a margin comprising the impact of exchange rates, taxes, transportation and associated costs. The subsequent difference between wholesale and pump prices is typically dictated by the purchasing power of the end retailer (discounts accrue based on volumes purchased, membership of a “branded” chain etc.) and an allowance for the retailer’s margin.
Analyses of these fluctuations over the time period of this study suggest a strong correlation between Platts prices and wholesale price fluctuations and the price of diesel and petrol at the pump (allowing for changes in the euro/ dollar exchange rates).
A large proportion of the pump price of fuel in this country comprises taxes and duties. The manner of their calculation can depress overall pump cost savings to consumers, notwithstanding drops in the underlying cost of the refined fuel product.
Overall, Ireland’s service station/retail petrol and diesel supply market would appear to be competitive by international standards. The density of outlets per capita (1 outlet per 2,020 people) in Ireland compares favourably against corresponding statistics for Northern Ireland (1 outlet per 3,113 inhabitants) and for Great Britain (1 outlet per 9,539 inhabitants). Data is required at the local level to make a definitive statement in this regard.
Examination of the accounts of the larger oil companies in Ireland suggest there is relatively modest profit to be made in the downstream supply of refined oil
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products. Further along the supply chain, statistics measuring the numbers of service stations and fuel outlets in the country point to sustained shrinkage year on year, which would further suggest this is not a highly profitable area in which to operate, at least at the level of fuel supply only. Increasingly, fuel retailers are adding retail outlets to their offerings, thereby enhancing revenue and margin opportunities.
A review of international studies on the same issue in the USA, Austria and Portugal reached broadly similar conclusions, identifying closely aligned movements in Platts prices and petrol and diesel pump prices.
Absolute fuel price competitiveness in Ireland would appear to be most significantly influenced by the effects of local competition. Areas with larger numbers of fuel retail outlets typically enjoy strong price competition, with the converse applying in sparsely serviced areas.
Notwithstanding these conclusions, the National Consumer Agency has identified a range of gaps in the manner in which information on petrol and diesel prices in Ireland is collected, analysed and made available. There is clearly scope for enhancement in analysis and reporting, and improvements in this area could serve to better inform consumers of general trends in petrol and diesel prices and to place a sustained spotlight on the competitive environment in this important sector.
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Table of Contents1 Introduction..............................................................................................................................5
2 The Oil Market in Ireland...........................................................................................................72.1 Refineries..........................................................................................................................72.2 Wholesalers......................................................................................................................82.3 Distributors.......................................................................................................................92.4 Retailers............................................................................................................................9
3 Pricing.....................................................................................................................................123.1 Whitegate Refinery.........................................................................................................12
3.1.1Refined Product Pricing - Month Average Customers.............................................133.1.2Refined Product Pricing - Twice Weekly Price Changes..........................................14
3.2 Wholesalers....................................................................................................................163.3 Oil Distributors /Retailers................................................................................................273.4 Competitiveness of the Market.......................................................................................29
3.4.1Oil Company Performance......................................................................................293.4.2Numbers in the Market...........................................................................................30
4 Collection of Retail Price Data................................................................................................314.1 Retail Price Data.............................................................................................................31
4.1.1AA Ireland Data Collection......................................................................................314.1.2Website Data..........................................................................................................324.1.3Central Statistics Office Data Collection.................................................................334.1.4EU Office Data Collection........................................................................................33
4.2 National Consumer Agency Surveys...............................................................................35
5 Conclusions.............................................................................................................................39
Annex 1 Investigations................................................................................................................41USA
…………………………………………………………………………………………………………………………………………………………..41Austria....................................................................................................................................41Portugal..................................................................................................................................41Other Studies..........................................................................................................................42
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Table of FiguresFigure 1 Europe Brent Spot Price January to December 2008..................................................12Figure 2 Refinery Versus Crude Oil Prices.................................................................................13Figure 3 Whitegate Customer Area...........................................................................................15Figure 4 Whitegate Refinery Margin.........................................................................................16Figure 5 Platts Quotes/ ConocoPhillips Wholesale Prices..........................................................18Figure 6 Platts Quotes/ Campus Wholesale Prices....................................................................19Figure 7 Platts Quotes/ Emo Wholesale Prices..........................................................................20Figure 8 Platts Quotes/ Esso Wholesale Prices..........................................................................20Figure 9 Platts Quotes/ Maxol Wholesale Prices.......................................................................21Figure 10 Platts Quotes/ Morris Wholesale Prices.......................................................................22Figure 11 Platts Quotes/ Topaz Wholesale Prices.......................................................................22Figure 12 Platts Quotes/Texaco Wholesale Prices......................................................................23Figure 13 Platts Quotes/ TOP Wholesale Prices...........................................................................24Figure 14 Petrol and Diesel Prices..............................................................................................30Figure 15 AA Ireland versus Platts..............................................................................................31
Table of TablesTable 1 Platts Variation Versus ConocoPhillips Wholesale Prices............................................18Table 2 Platts Variation Versus Campus Wholesale Prices......................................................19Table 3 Platts Variation Versus Emo Wholesale Prices............................................................20Table 4 Platts Variation Versus Esso Wholesale Prices............................................................21Table 5 Platts Variation Versus Maxol Wholesale Prices..........................................................21Table 6 Platts Variation Versus Morris Wholesale Prices.........................................................22Table 7 Platts Variation Versus Topaz Wholesale Prices..........................................................23Table 8 Platts Variation Versus Texaco Wholesale Prices........................................................23Table 9 Platts Variation Versus TOP Wholesale Prices.............................................................24Table 10 Petrol and Diesel Price Build-up early December 2008...............................................25Table 11 Petrol and Diesel Prices –Cost of Product and Taxes..................................................25Table 12 Setting of Price - Summary.........................................................................................27Table 13 Oil Company Accounts................................................................................................28Table 14 Petrol Prices 7 November 2008...................................................................................35Table 15 Diesel Prices 7 November 2008..................................................................................36Table 16 National Results Petrol................................................................................................37Table 17 National Results Diesel...............................................................................................37
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1 IntroductionThere is a widely held view that when the price of crude oil increases, petrol and diesel prices at the pump rise quickly, but that when the price of crude oil decreases, prices at the pump are slower to fall.
In September 2008, the Tánaiste and Minister for Enterprise, Trade and Employment Mary Coughlan, TD, “requested the National Consumer Agency1 to undertake a survey into why pump prices for petrol and diesel have not fallen in line with the drop in the wholesale price of oil.” The Tánaiste went on the say that “I consider it important that there should be greater transparency between the manner in which the retail price for fuel paid by consumers follows changes in the wholesale price”.
This document presents the findings of the Agency’s investigation into the movement of petrol and diesel prices in Ireland. The analysis in this study is based on information commencing January 2nd 2008 and includes data collected up until the first week of December 20082.
In compiling this investigation, the Agency has: Held discussions with oil companies (Texaco, Top, Esso, Maxol, Topaz,
ConocoPhillips), oil distributors (East Cork Oil), retailers (Tesco, Applegreen3, individual retailers) and other relevant parties (National Oil Reserves Agency, Irish Petroleum Retailers Association, Competition Authority and Department for Communications, Energy and Natural Resources),
Conducted extensive surveys of petrol and diesel prices at the pump (over 2,400 prices gathered over 4 Fridays in November),
Analysed wholesale and retail prices in Ireland and compared these with prices for refined product at international level.
In order to understand how and why prices change it is necessary to understand how the oil industry operates. As a result, a significant proportion of this report is concerned with describing the market for petrol and diesel in Ireland. This will improve transparency and it also provides useful context for the sections of the report that analyse price fluctuations.
This study was conducted within the following parameters: Only the market for petrol and diesel4 was examined, Within this market, only sales to private consumers were examined5
1 Hereafter referred to as the Agency.2 This tightly restricted time frame simplified the required analysis, as a longer-term study would require correcting for changing distribution costs, longer term inflation etc. 3 The Agency would have liked to consult with a number of other oil companies in Ireland but there was insufficient time. 4 The Agency is happy to examine the market for home heating oil at the request of the Tánaiste. While wholesale prices are readily available, accurate retail prices would be difficult to obtain as the nature of the market lends itself to difference prices for different customers, depending on volume, distance to travel, credit history etc.5 The market for haulage and fuel cards is excluded as these markets have their own distinct characteristics?.
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The report is divided into this introduction plus 4 sections and an Appendix as follows:
Section 2 outlines the context for the study by providing a description of the market for oil in Ireland.
Section 3 describes the factors that affect pump prices and compares relevant trends in international prices with wholesale and retail prices in Ireland.
Section 4 examines the current situation in Ireland with regard to the collection of price data and also presents the results of the Agency’s surveys.
Section 5 presents conclusions, recommendations and outlines a number of areas where further study may be warranted.
Appendix 1 presents the results of similar price investigations in other countries. Key points are highlighted in bold throughout the report.
The Agency would like to thank those who provided time and information in the course of this study.
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2 The Oil Market in IrelandIn order to provide a context for the analysis of prices, this section gives a brief summary of the oil sector in Ireland.
In 2007, according to Experian Catalist6, total motor fuel sales in Ireland were just over 3 billion litres. The total market for oil in Ireland is approximately 0.2% of the world total. The market for the EU as a whole is around 100 times larger 7. Ireland imports all of its oil requirements either in the form of crude oil or as finished products such as petrol and diesel. For the most part, the crude oil that is refined in Ireland is sourced from the North Sea while imports of finished products come from the UK and Europe.
Crude oil is imported into the ConocoPhillips Whitegate refinery, while finished products are imported into Dublin, Drogheda, New Ross, Marina, Foynes, Limerick, Galway and via Northern Ireland through Derry and Belfast. These ports are of varying size, which affects the size of the ships that use them, and in turn the prices that consumers pay further down the distribution chain. This is explained in more detail hereafter.
The oil industry comprises two distinct segments, upstream and downstream. Upstream oil companies are concerned with exploring, extracting, producing and transporting crude oil. Downstream oil companies refine, store, transport, distribute and sell refined products such as petrol and diesel. Some companies are vertically integrated, i.e. they are involved in more than one level of the market, and several operate across the entire supply chain, from extraction to retail sales.
It is important to note that the vertically integrated companies in Ireland operate as separate entities to the refineries owned by their parent companies. They compete for refinery output with other companies on a commercial basis. In Ireland, ConocoPhillips, Esso and Texaco are vertically integrated.
The Competition Authority has identified8 four categories or stages in the motor fuel industry in Ireland:
Refineries, Wholesalers, Distributors, Retailers.
2.1 RefineriesThere is one refinery in Ireland9, based in Whitegate, Co. Cork. The refinery was constructed in 1959 and ran until it was shut down (due to over capacity in Europe) in 1981. It was restarted soon after by the state owned Irish National Petroleum Corporation
6 Experian Catalist provide daily site retail fuel prices for main fuels on sites across the UK, the Netherlands and Spain. They also publish market data for Ireland. The displayed prices for each type of fuel are obtained from fuel card transactions made on the forecourts the day before.7 Source: International Energy Agency.8 Competition Authority Submission to OECD Working Party on Competition and Regulation. September 2008.9 In comparison, the UK has 10 refineries. Denmark, a country with similar demand to Ireland, has 2.
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and was sold to Tosco in 2001. Phillips subsequently acquired Tosco in 2001, which in turn merged with Conoco in 2002. There is an agreement with the Irish Government that the refinery will continue to operate until 2016.
The refinery is small by international standards however it runs permanently10 at maximum capacity (75,000 barrels a day). There is a large, by Irish standards, import facility on the site.
The refinery converts crude oil into LPG, gasoline, kerosene, diesel, heating oil and fuel oil. It supplies approximately one third of the transport market in Ireland and is responsible for the majority of product in the South of Ireland (see Section 3). It does not sell directly to private consumers.
In most cases, from each barrel of crude oil, the refinery produces 20% gasoline, 10% kerosene, 20% diesel, 10% heating oil, 35% fuel oil, 5% consumed as fuel.
The proportion of fuel oil is high in comparison with other refineries. This limits profitability, as fuel oil is less valuable than the other products. Its gross margin, the difference between the aggregate product price and the crude price, varies daily (see Section 3).
The refinery sells to over 100 customers (see Section 3) Wholesalers, Distributors, Retailers, Other e.g. Marine, Spot, Tender.
2.2 WholesalersWholesalers import petroleum products into Ireland, or purchase from the refinery at Whitegate.
The key players in this segment are: Campus Oil, Chevron (trading as Texaco in Ireland), ExxonMobil (Esso), Emo MorrisOil Maxol, Topaz, TOP.
10 The only scheduled shut down occurs once every 5 years.
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These companies’ import directly and in some cases storage facilities are operated on a shared basis, such as the Dublin Joint Fuels Terminal, operated by Esso and Texaco. Topaz operate their own terminals in Dublin, Cork, Limerick, and Galway. TOP operate their own terminal in Dublin, and have throughput arrangements with others around the country. Maxol, Emo, Campus and Morris have throughput arrangements with a number of terminal operators around the country.
2.3 DistributorsThese companies obtain product from wholesalers or directly from Whitegate refinery and sell it to a range of domestic, industrial and commercial customers (including service stations). There are a large number of companies in this category, many of which are also wholesalers (Topaz, Maxol etc). Some of the main players in this market are the firms mentioned in section 3.2 plus Petrogas, Emo, East Cork Oil, Sweeney Oil etc.
Product is either moved by road or by sea because there are no oil pipelines in Ireland, as there are in the UK for example. This has a significant impact on costs, see section 3.
2.4 RetailersThese companies supply directly to consumers. The discussion here is limited to service stations and does not address the supply of home heating oil.
There are four main types of service station in Ireland:1. Those owned and operated directly by oil companies,2. Those owned directly by oil companies but licensed to station operators
(Licensees),3. Those owned by independent retailers which are tied to a particular supplier
(by way of a Solus agreement11) and 4. Independent retailers not tied to a supplier (there are very few of these).
Independently owned stations may or may not operate under the brand of an oil company. In practice, it is impossible for the consumer to distinguish between oil company owned service stations and independently owned stations operating under the brand of that oil company. Yet this distinction is important as categories 2, 3, 4 above set their own prices whereas Head Office will set prices for company owned stations, reflecting savings achieved through purchasing power based economies of scale. Over 75% of service stations in Ireland are independently owned.
There are approximately 10 main players in the Retail segment of the market. The largest, Topaz, operates a network of 350 service stations, some of which it owns and some of which it operates under Solus agreements. Esso, Maxol and Texaco all operate similar numbers of service stations. Other well-known brands are Campus, Emo, Tesco, Applegreen, and GreatGas.
11 A Solus agreement is one by which a person aggress to buy from, or be supplied by, one supplier. This type of agreement is common in the fuel retail business.
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Solus agreements operate for a fixed period. Since 2002, they are limited to 5 years (rather than 10 years as was the case previously), although they can be for a shorter period. In general, the agreement entails an exclusive purchasing obligation whereby the retailer purchases product at a wholesale price less a fixed rebate which can by mutual agreement be reviewed to take account of competition and changing circumstances (see section 3).
In return the oil company may provide money for re-branding and shop refurbishment. This is not always the case and some retailers wish to remain “unbranded” or elect to pay for re-branding themselves. The size of rebate achievable by them depends on a number of factors including the size of any loan from the oil company, location, sales volume/history etc.
In general, these agreements allow retailers to take advantage of branding and cross-selling opportunities, benefit from the marketing expertise and buying power of the larger firm and, importantly, to achieve cost efficiencies in their purchasing. For this reason, very few stations are not tied to an oil company.
The total number of retail sites in Ireland is disputed, with figures ranging from 1,33212 to 2,03413. This difference reflects the proportion of fully-fledged “service stations” versus unbranded outlets that have just one or two pumps. Industry sources suggest that in years to come a “natural level” for this country will be around 1,000 service stations.
In addition, the total number of stations has been in decline for the last 20 years or so. Figures from the Irish Petroleum Industry Association (IPIA) show that for its members14
the total number of sites fell from 2,308 in 1997 to 1,092 in 2007 (a decrease of 52%).
A number of reasons are cited for this decline in the number of stations in Ireland over time (in random order):
Property development (particularly in Dublin), Increased safety standards – requirements for significant investment in sites to
comply with the Dangerous Substances Act and Reduced profitability due to increased competition.
In recent years there has been a move to add convenience stores/delis to the fuel side of the business. The reason given is that the higher margins achievable through these activities compensate for the relatively modest return on selling fuel (margins are discussed in detail in section 3). It should be noted, however, that the size of service station shops is restricted to 2,000 square feet under the Retail Planning Guidelines, unless local authorities grant otherwise under special planning conditions.
There are no restrictions on the number of service stations in Ireland, the market is fully liberalised. A set of key criteria must be satisfied, including full planning permission and the applicant must comply with the Dangerous Substances Act (Retail & Private
12 Competition Authority Submission to OECD Working Party on Competition and Regulation. September 2008.13 Experian Catalist (2007 figures). 14 Campus, ConocoPhillips, Emo Oil, Esso, Maxol, Chevron, TOP and Topaz.
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Petroleum Stores) S.I. 311 1979, and European Communities (Control of Major Accident Hazards involving Dangerous Substances) Regulations, 200015.
In terms of the volume of the Irish retail market for petrol and diesel, Experian Catalist reports the average volume per station in Ireland at 1.498 million litres of motor fuels per annum. This average is slightly misleading as it includes a number of small and very small outlets. Independently owned service stations typically sell in the region of 0.5m litres to 2,5m litres per annum while a decent sized company owned site will have a volume of around 3m to 4m litres per annum.
The number of stations per capita in Ireland is 1 station (taking the higher figure above) for every 2,020 inhabitants. This compares with 1 station per 9,539 inhabitants in the UK and 1 station per 3,113 people in Northern Ireland. These figures are all derived from Experian Catalist data, so they should be comparable. Taken in isolation, this suggests that, at a national level at least, the market structure is competitive compared to Northern Ireland and the UK. It should be noted, however, that fuel markets are local in nature; therefore data at this level is required in order to make a definitive statement.
In summary, along with independently owned sites and some very small (<10) retail networks, there are 10 principal participants in the retail market: Esso and Texaco are vertically integrated to the refinery level, ConocoPhillips operate at the refinery and wholesale level. The remaining players are all Irish-owned. Topaz, the largest operator, is integrated to the wholesale level, as are TOP, Campus, Maxol and Emo. The two newer entrants, GreatGas and Applegreen, are not integrated16. Tesco sources its fuel from Topaz.
15 Department of Communications, Energy and Natural Resources.16 Competition Authority Submission to OECD Working Party on Competition and Regulation. September 2008.
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3 PricingThe price that consumers pay for petrol and diesel in Ireland depends on a number of factors including the price of crude oil, the price of refined product, taxes, transportation costs, company margins etc. This section will describe these factors in detail.
Given the importance of the refinery at Whitegate to the overall market, their pricing structure is examined separately.
3.1 Whitegate Refinery As mentioned in section 2, Whitegate refinery is the only entity in Ireland that imports crude oil. It then refines this crude oil into final products such as fuel oil, petrol and diesel.
Crude oil is a commodity and as such its value behaves as any other commodity, with price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply fluctuations.
Demand for crude oil is derived from the demand for the finished and intermediate products that can be made from it. Commodity traders and speculators also increasingly affect demand. Figure 1 shows the variability in the price of oil over the period from January to early December 2008. As most of our imported crude oil comes from the North Sea, data in Figure 1 relates to oil from that area, known as Brent Oil.
Figure 1Europe Brent Spot Price17 January to December 2008
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Source: Energy Information Administration
17 Spot price is defined as the present delivery price of a commodity being traded on the spot market. Also called cash price.
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The average price over the period was $102 per barrel, however the actual price ranged from $44.91 per barrel on November 21st to $143.95 per barrel on July 3rd. These large increases and decreases are unprecedented. Prices have fallen further since this data was obtained. The reasons for this increased variability are not the subject of this study and are explained elsewhere18.
As mentioned in section 2 Ireland accounts for only 0.2% of world demand and the EU’s share is 100 times larger than Ireland’s. Correspondingly, Ireland’s market does not affect the price of crude oil and Ireland is a “price taker”.
Crude oil is imported into Whitegate by ship approximately every 9 days. The price paid for each cargo is the average price of crude, as priced by Platts (Platts is a provider of energy information including crude oil and refined prices), 5 days around loading day (2 days before loading day, the day of loading and 2 days after). These prices are “evened” out over the month by trading on the futures market.
The pricing mechanism used for charging depends on the type of customer. There are two segments: those who pay on the average of the current month and those who pay based on a wholesale price that changes twice a week.
3.1.1 Refined Product Pricing - Month Average CustomersIn this case, the price is based on Platts prices for refined products such as petrol and diesel (Platts prices and the relationship with wholesale prices are examined in more detail in section 3.2). There is an underlying relationship between refinery and crude oil prices but in the short term the two do not always move synchronously (Figure 2). This is because the price of refinery oil is not only dependent on the cost of its raw material but also on the actual demand for petrol or diesel (for example demand for diesel is higher in winter when it is also used as heating oil).
Figure 2Refinery Versus Crude Oil Prices
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Source: Energy Information Administration, Platts
18 For example http://www.parliament.uk/commons/lib/research/briefings/snsg-02106.pdf
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The month average is priced in dollars per tonne. These prices are only released at the end of every month; the average is based on data for every available day during that month. Product is sold either through the jetty (jetty sales) or is loaded onto trucks (rack sales). The price charged will depend on the method of collection. In general, jetty sales would be larger volumes so they would be more cost effective than collecting from a truck loading rack. The final price charged is the month average for Platts (plus a Platts Premia, the amount depending on the particular circumstances), added to which are “On-costs” to account primarily for the costs for marine freight, insurance, port dues, storage and throughput, evaporation costs etc (see Table 10).
The customers in this segment are larger oil companies. They are open to price volatility (upward and downward movements) and must take the risk on pricing and currency changes over the month. For example if the average of the previous month was $1,000 per tonne but the current price is $1,200 the oil company can sell the product at a higher price than it paid for it. The reverse is, of course, true in a falling market. The greatest level of exposure occurs when prices either rise or fall in a short period of time e.g. days as opposed to weeks.
3.1.2 Refined Product Pricing - Twice Weekly Price ChangesThis price change method reflects the extent of oil price volatility in the market. Prices in this case are denominated in euro cents per litre. They are based on Platts averages for refined product, originally denominated in dollars, but changed to euros using official ECB exchange rates, added to which are On-costs.
Since September 2008 prices for most companies have changed twice a week19, on Wednesday and Friday at midnight. Wednesday price changes use the average of the daily Platts quotes from the previous 3 days while Friday’s price corresponds to 2 quote days. In general, the “wholesale” price will move up and down directly with Platts prices20 and Euro to US$ exchange rate. The gap between the two is explained in section 3.2.
Buyers, however, do not purchase at this wholesale price. Instead they buy at Platts plus ConocoPhillips’ “mark-up” or margin (converted to euro cents per litre). The length of time for which this mark up is fixed for varies according to contractual terms but in general it is for one year.
Customers in this segment can only take delivery off the truck loading rack. The price ConocoPhillips charge for product is in line with competitive forces in the market so as to optimise their sales volumes and margins.
Figure 3 shows the area that ConocoPhillips’ customers come from.
19 Previously prices were changed on a weekly basis. As the volatility of the fuel price increased over the past years, the industry has moved towards more regular price changes to protect both supplier and customer against significant market movements. In the UK prices are changed daily. 20 It is important to note that when comparing ConocoPhillips wholesale prices with oil wholesalers (next section) that ConocoPhillips do not deliver so the price charged will be lower.
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Figure 3Whitegate Customer Area
Imports from UK and EuropeDublin
New Ross
Limerick/Foynes
Galway
Derry
Cork
Belfast
Imports from UK and EuropeImports from UK and EuropeDublin
New Ross
Limerick/Foynes
Galway
Derry
Cork
Belfast
Source: ConocoPhillips Whitegate
It can be seen that, in general, it is only economical to buy from Whitegate if one operates in the southern half of the country (it may also be economical if you are a large customer who can purchase a large quantity and move it by ship to, for example, Dublin).
The ratio of average of month customers to twice weekly is 60/40.
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The difference between the purchase price of crude and the price of the refined product is the refinery margin. Due to the volatile nature of the market, as mentioned in section 2, refining margins vary daily, shown in Figure 4. The scale is not on this figure in order to preserve commercially sensitive information. Given that the price of the crude oil varies widely (especially in recent times) there is great uncertainty as to the size of the margin.
Figure 4Whitegate Refinery Margin
Source: ConocoPhillips Whitegate
3.2 WholesalersThe key point to note here is that oil importers/ wholesalers in this segment of the market (approximately 70% of volume i.e. the portion apart from ConocoPhillips) do not purchase crude oil; they import refined products such as petrol and diesel. It is therefore incorrect to directly compare the price of crude oil with wholesale or retail petrol and diesel prices. Instead wholesale prices should be compared to the relevant Platts quotations for refined product taking into account US$ - v - Euro exchange rates.
For the most part, oil wholesalers buy on the average of the month and sell to distributors or retailers. The wholesale prices change twice a week and are based on the average of Platts over the previous 2 or 3 days, as relevant. The movements of wholesale and Platts prices will not always match exactly, for example, due to periodic adjustments for inflation and margin alterations but over time they should track each other closely.
Distributors or retailers pay this wholesale price minus a fixed rebate. The rebates are fixed, for anything up to 5 years (Solus agreement, but increasingly are reviewed more often). Therefore the price that the retailer pays for product should move up and down in conjunction with Platts quotes. As mentioned previously, the size of this rebate depends on a number of factors including:
Whether or not an upfront payment has been granted as part of a Solus agreement, Volume of sales,
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Inland transport costs, Credit rating and credit terms applicable, Duration of the business relationship.
Wholesale prices are readily available (some are published on the oil companies’ websites) and are published together on a website www.fuelpricesonline.com.
The Agency has obtained wholesale prices from this source for all the major oil retailers in Ireland and Figure 5 to Figure 13 compare relevant Platt’s quotations with wholesale petrol and diesel prices in Ireland for each major firm in Ireland. Wholesale prices have also been acquired directly from some of the major oil companies so that the www.fuelpricesonline.com data can be verified.
The gap between the Platts quotes and the wholesale prices is explained below. In the following figures the Platts quote21 for each day is the average of the high and low quote. The original dollar figures are changed to euros using the official ECB rate on the relevant day and finally changed to cents per litre using standard densities to match the wholesale prices. The wholesale price includes the NORA levy of 1 cent per litre and excise (currently 50.9 and 36.8 cents per litre for petrol and diesel respectively) and costs of getting the product to Ireland to the point of the loading rack whilst the Platts data exclude the NORA and excise.
Trend lines are added to each graph to facilitate comparison.
As a good measure to see how consistent the oil companies are in lowering and increasing prices it is useful to compare the differential between the schedule price and the Platts average. This is done in Table 1 to Table 9 under each of the figures. In this case to facilitate comparison, NORA and excise duties are excluded.
The gap should be fairly constant during the year apart from some minor alterations to account for inflation. This “gap analysis” is an area that requires further study over a longer time period. The enormous volatility in product prices and exchange rates seen in 2008 does not help current analysis.
21 Platts quotes are refinery prices, exclude any supplier costs or taxes and charges.
17
Figure 5Platts Quotes/ ConocoPhillips Wholesale Prices
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Platts Petrol Platts Diesel ConocoPhillips Schedule DieselConocoPhillips Schedule Petrol Linear (Platts Petrol) Linear (Platts Diesel)Linear (ConocoPhillips Schedule Petrol) Linear (ConocoPhillips Schedule Diesel)
Source: Energy FuelPricesOnline, Platts
Table 1Platts Variation Versus ConocoPhillips Wholesale PricesCents per Litre Petrol Diesel
Start 7.40 9.14End 8.65 10.60
Maximum 8.69 10.68Minimum 6.60 8.21Average 7.47 9.18
Source: Energy FuelPricesOnline, Platts
18
Figure 6Platts Quotes/ Campus Wholesale Prices
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Platts Petrol Platts Diesel Campus Schedule Diesel Campus Schedule Petrol
Linear (Platts Petrol) Linear (Platts Diesel) Linear (Campus Schedule Petrol) Linear (Campus Schedule Diesel)
Source: Energy FuelPricesOnline, Platts
Table 2Platts Variation Versus Campus Wholesale PricesCents per Litre Petrol Diesel
Start 14.70 17.52End 15.95 18.89
Maximum 15.97 18.92Minimum 14.70 8.89Average 15.36 18.33
Source: Energy FuelPricesOnline, Platts
19
Figure 7Platts Quotes/ Emo Wholesale Prices
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02/0
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Platts Petrol Platts Diesel EMO Schedule Diesel EMO Schedule Petrol
Linear (Platts Petrol) Linear (Platts Diesel) Linear (EMO Schedule Petrol) Linear (EMO Schedule Diesel)
Source: Energy FuelPricesOnline, Platts
Table 3Platts Variation Versus Emo Wholesale PricesCents per Litre Petrol Diesel
Start 17.73 19.75End 18.67 21.81
Maximum 18.68 21.86Minimum 17.69 18.39Average 18.33 21.08
Source: Energy FuelPricesOnline, Platts
20
Figure 8Platts Quotes/ Esso Wholesale Prices
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02/0
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Platts Petrol Platts Diesel ESSO Schedule Diesel ESSO Schedule Petrol
Linear (Platts Petrol) Linear (Platts Diesel) Linear (ESSO Schedule Petrol) Linear (ESSO Schedule Diesel)
Source: Energy FuelPricesOnline, Platts
Table 4Platts Variation Versus Esso Wholesale PricesCents per Litre Petrol Diesel
Start 13.28 19.75End 15.10 21.81
Maximum 16.00 21.86Minimum 12.34 18.39Average 14.06 21.08
Source: Energy FuelPricesOnline, Platts
21
Figure 9Platts Quotes/ Maxol Wholesale Prices
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Platts Petrol Platts Diesel Maxol Schedule Diesel Maxol Schedule Petrol
Linear (Platts Petrol) Linear (Platts Diesel) Linear (Maxol Schedule Petrol) Linear (Maxol Schedule Diesel) Source: Energy FuelPricesOnline, Platts
Table 5Platts Variation Versus Maxol Wholesale PricesCents per Litre Petrol Diesel
Start 14.66 17.87End 15.95 19.34
Maximum 15.95 19.69Minimum 14.66 17.87Average 15.29 18.88
Source: Energy FuelPricesOnline, Platts
22
Figure 10Platts Quotes/ Morris Wholesale Prices
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Platts Petrol Platts Diesel Morris Schedule Diesel Morris Schedule Petrol
Linear (Platts Petrol) Linear (Platts Diesel) Linear (Morris Schedule Petrol) Linear (Morris Schedule Diesel)
Source: Energy FuelPricesOnline, Platts
Table 6Platts Variation Versus Morris Wholesale PricesCents per Litre Petrol Diesel
Start 14.77 18.01End 16.04 19.55
Maximum 16.13 19.73Minimum 14.70 16.69Average 15.37 18.83
Source: Energy FuelPricesOnline, Platts
Figure 11Platts Quotes/ Topaz Wholesale Prices
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Platts Petrol Platts Diesel Topaz Schedule Diesel Topaz Schedule Petrol
Linear (Platts Petrol) Linear (Platts Diesel) Linear (Topaz Schedule Petrol) Linear (Topaz Schedule Diesel)
Source: Energy FuelPricesOnline, Platts
23
Table 7Platts Variation Versus Topaz Wholesale PricesCents per Litre Petrol Diesel
Start 14.77 18.23End 16.27 19.68
Maximum 16.49 20.54Minimum 14.00 17.78Average 15.57 19.14
Source: Energy FuelPricesOnline, Platts
Figure 12Platts Quotes/Texaco Wholesale Prices
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Platts Petrol Platts Diesel Texaco Diesel Texaco Schedule Petrol
Linear (Platts Petrol) Linear (Platts Diesel) Linear (Texaco Schedule Petrol) Linear (Texaco Diesel)
Source: Energy FuelPricesOnline, Platts
Table 8Platts Variation Versus Texaco Wholesale PricesCents per Litre Petrol Diesel
Start 14.39 17.21End 15.68 18.82
Maximum 15.74 18.97Minimum 14.39 17.11Average 15.26 18.37
Source: Energy FuelPricesOnline, Platts
24
Figure 13Platts Quotes/ TOP Wholesale Prices
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AA Petrol AA Diesel Top Schedule Diesel Top Schedule Petrol
Linear (AA Petrol ) Linear (AA Diesel) Linear (Top Schedule Petrol) Linear (Top Schedule Diesel)
Source: Energy FuelPricesOnline, Platts
Table 9Platts Variation Versus TOP Wholesale PricesCents per Litre Petrol Diesel
Start 15.01 17.90End 17.94 21.18
Maximum 17.94 21.20Minimum 15.01 17.90Average 15.91 19.48
Source: Energy FuelPricesOnline, Platts
To summarise, Figure 5 to Figure 13 and Table 1 to Table 9 show that, over the period under investigation, wholesale prices have for the most part tracked Platts refinery prices and that the variation between the two datasets remained fairly constant in increasing and decreasing markets, when an allowance for inflation is taken into account.
As mentioned previously, the gap between Platts quotes and wholesale prices includes the price of crude oil or refined product (where applicable), exchange rates, taxes, transportation costs etc. Table 10 gives an example of these different costs for a large wholesale oil company in Ireland. This company would buy on the average of the month and set its wholesale prices twice weekly. The exact costs would vary over time and from location to location but these are indicative of current costs of importing into Dublin.
In Table 10 “On Costs” includes all costs from jetty to loading rack including marine freight, marine insurance, transit losses, off loading costs, port dues, storage and throughput, and operational losses (evaporation).
25
Table 10 Petrol and Diesel Price Build-up early December 2008Petrol Diesel Note
Wholesale Price 92.1 93.1Cents per litre NO VAT incl.
NORA Levy 1.0 1.0Excise Duty 50.9 36.8
Wholesale Price Net of Excise and NORA Levy 40.3 55.3
Platts Price 406.75 537.17 $ per tonne
Platts Premia -2.5 0.0
Can be plus, minus or 0 depending on the circumstances
Total Platts 404.3 537.2 $ per tonneUS$ to € 1.3 1.3 ECB Data
Platts Price 320.2 425.5 € per tonneOn Costs 26.5 30.5 € per tonneSubtotal 346.7 456.0
Litres per tonne 1325.0 1183.0Average Density
Cost of Product per litre 26.2 38.6Estimated Gross Margin to Wholesale Schedule Price (Wholesale Price Net of Excise and NORA Levy - Cost of Product per litre) 14.1 16.8 Cents per litre
Source: Industry Sources, Platts
The estimated gross margin includes the rebate given to distributors and or retailers. This varies significantly and will depend on volume and distance travelled.
The remaining margin is what is available to the wholesaler. In this example the actual margin would be approximately 2.5 cent per litre. This 2.5 cent per litre would be a wholesaler selling to a decent sized service station. It is worth reiterating that this does not include fuel card sales, which represent very significant volumes and are much more competitively priced than “conventional” retail sales.
In this example the pump price is taken to be €1.01 per litre for petrol and €0.93 per litre for diesel. In this case Government taxes and levies account for 69% of the petrol pump price and 54% of the diesel price. The actual cost of product makes up 26% and 37% respectively (Table 11). This is very significant in the context of changing retail prices (see discussion hereafter). The remainder, as discussed above, is accounted for by inland delivery, credit and profit etc. (for wholesaler, distributor and retailer, sometimes of course, these are the same company).
Table 11 Petrol and Diesel Prices –Cost of Product and Taxes Petrol DieselRefinery Product Price 26% 37%Government 69% 54% Product + Government = 95% 91%
26
Pump Price 100% 100%Source: Industry Sources, Platts
3.3 Oil Distributors /RetailersThis segment of the market buys from wholesalers or direct from Whitegate refinery based on a fixed rebate off prices set twice a week. Oil distributors must share their margin with the retailer, which dilutes it further.
The margin in the retailer segment of the market is generally quite small and will depend on:
Volume, Distance from port or distributor depot, Whether the station is owned by an oil wholesaler, a distributor or independently
owned (and in the latter case if there is a Solus agreement in place), Local competition, number and size of stations in the area and Presence of a forecourt shop/convenience store.
For independent retailers the volume of sales will on average be in the region of 0.5 to 2.5 million litres per annum. The gross margin at this level of the market is around 2.5 cent a litre; included in this would be the station’s operating costs.
The Agency has, on a confidential basis, reviewed actual pricing and rebate data for a number of retailers; the figures are a close match to the margins presented above.
By comparison, the gross margin in the UK would be slightly higher, which reflects the smaller number of petrol stations per capita, and correspondingly higher volume per station.
Given the volumes involved, what might be thought of as small fluctuations can have an important impact on the bottom line. For example, if a station could charge an extra cent, on a volume of 3m litres over a year, this would result in an “extra” profit of €30,000.
A common misconception is that oil companies or retailers store product when the cost is rising and sell it at later at the higher price. This is not generally possible due to the high costs of storage and also to the fact that retailer’s tank sizes are strictly regulated under planning regulations. Most retailers receive a delivery once a week, some once a day or more.
Another topical concern is that diesel prices have become more expensive than petrol, when historically the opposite was the case. This trend has been observed throughout Europe. The International Energy Agency22 has said that longer-term increases in demand from Europe and across the world (China especially) have left Europe ‘structurally short’ of diesel and hence refinery margins have increased. In the long term the amount of diesel that is produced may increase to meet this additional demand and wholesale and retail prices may fall.
22International Energy Agency, Oil Market Report, October 2008.
27
The next section compares Platts quotes to retail prices.
Figure 12 presents a summary of the market.
Table 12 Setting of Price - SummaryMarket Segment
Buys Buys from Price Based on
Sells to Price Changes
Price Based on
Examples
Refinery Crude Oil
International Market
Platts Crude
Oil Companies or retailers
Monthly or Twice Weekly
Platts as a benchmark
ConocoPhillipsWhitegate
Wholesaler RefinedProduct
Whitegate, UK or European Refiners
Platts quotes for refined product
Oil distributors orretailers or directly to consumers through own fuel stations
Twice Weekly for Distributors, up to daily for own stations
Platts as a benchmark
TopazMaxolTexacoTOPEssoEtc.
Distributor RefinedProduct
Whitegate or large oil company
Platts quotes for refined product
Retailers, directly to consumers throughown fuel stations
Twice Weekly or daily for own stations
Wholesale minus a rebate
TOPEssoEast Cork OilAmber Oil Etc.
Retailer RefinedProduct
Whitegate, large oil company or oil distributors
Platts quotes for refined product
Directly to consumers through own fuel stations
Twice Weekly or daily for own stations
Wholesale minus a rebate
TopazEssoTescoApplegreen
28
3.4 Competitiveness of the MarketOil company representatives have said repeatedly in public that the oil market in Ireland is very competitive. This statement was reiterated in all the discussions the Agency had with oil companies and with other industry sources that might be considered to be more impartial than the former.
Two key metrics can be used to assess this statement: Oil company performance as measured by their company accounts and The number of stations in the market.
3.4.1 Oil Company PerformanceTable 13 presents data from the company accounts of a number of the larger oil companies in Ireland.
Table 13 Oil Company Accounts
2007 Maxol23 Topaz Esso Petrogas24 Chevron25Conoco Phillips
Cost of Sales
€696,670,384
€1,698,130,000
€589,657,000
€140,762,000
€1,303,078,000 €2,257,785,000
Gross profit
€39,966,658
€47,365,000
€47,635,000
€16,266,000
€49,209,000
€26,383,000
5.7% 2.8% 8.1% 11.6% 3.8% 1.2%
Operating profit
€11,380,610
€6,098,000 €2,012,000
€6,056,000
€7,144,000
€18,768,000
1.6% 0.4% 0.3% 4.3% 0.6% 0.8%
Net profit pre tax
€13,153,064
€30,385,000
€6,014,000
€3,229,000
€36,029,000
€17,158,000
0.2% 1.8% 1.0% 2.3% 2.8% 0.8%
Net profit after tax
€10,244,831
€26,674,000
€5,193,000
€2,736,000
€29,319,000
€14,091,000
1.5% 1.6% 0.9% 1.9% 2.3% 0.6%
Source: Companies Registration Office
It is clear from this table that while cost of sales are large, profits are modest. This would suggest that this is a high volume, low margin business. Profits are not differentiated by activity i.e. profits on fuel sales are combined with profits from shop and other forecourt sales e.g. Car Wash.
It would therefore appear that the very large profits such as those announced by oil companies, for example, Royal Dutch BP, derive to a far greater extent from extracting crude oil from the ground than from operations in the downstream segment of the market. Note that vertically integrated oil companies operate each segment of their business separately.
23 Note that these figures refer to Maxol’s operations in the Republic of Ireland and Northern Ireland. 24 Applegreen is a brand name used by Petrogas25 Trading as Texaco
29
3.4.2 Numbers in the MarketAs stated in section 2.4, the total number of stations has been in decline for the last 20 years or so. However, at a national level at least the number of stations per capita could suggest that the market is more competitive than the UK or Northern Ireland26. Experian Catalist have stated that 105 sites closed in 2007, following 107 closures in 200627. A number of new sites opened in the same period. These new stations tend to be larger in size and boast retail outlets, which offer a wide range of goods, particularly hot beverages and food. It is argued that whilst margins are small on the fuel side of the business, the margin on a cup or coffee, for example, can be relatively large. The cost associated with fitting out a store is significant, up to €500,000 in the case of larger sites.
It is known that Tesco’s expansion plans for their fuel business in Ireland has been constrained by current planning restrictions. The Irish Petroleum Retailers Association have expressed concern about the spread of combined service station/retail outlets such as those operated by Tesco, on the basis that increasing numbers of large stations (using a large store to subsidise the fuel side of the business) drive smaller operators out of the market.
They are of the opinion that the result in years to come will be that there will be a much smaller number of stations, therefore customers will have to travel further to purchase fuel, which negates some of the effect of current lower prices.
Another indication of the current competitiveness of the market is the limited presence of multi -national oil companies. Only Esso and Texaco remain after Shell and Statoil sold their Irish interests to Topaz. The consensus in the industry is that the profit to be made in Ireland was not sufficient to make their continued presence worthwhile.
26 As stated earlier it is acknowledged that fuel markets are local in nature; therefore data at this level is required in order to make a definitive statement.27 Some of these closures, particularly in Dublin, would have been due to the high value of the land and ensuing property development.
30
4 Collection of Retail Price Data Petrol and diesel retail prices in Ireland are available from a number of Government sources, from AA Ireland and via websites such as Pumps.ie. As part of this study, the Agency also conducted 4 widespread and detailed surveys in November; the results of which are detailed in section 4.2.
4.1 Retail Price Data4.1.1 AA Ireland Data CollectionData collected by AA Ireland comes from its rescue fleet, members of the public and some, directly from the oil companies. A national average is published for petrol and diesel each month. Comparisons are also made with data from motoring groups throughout the world. While the data is considered to be relatively accurate and it provides a good time-series, in the current climate of rapidly fluctuating prices, data published monthly is of limited use.
AA Ireland is seeking to increase the frequency of data releases and has had initial discussions with the Agency on a proposal for a joint survey.
Figure 14 presents data from AA Ireland for the period July 2000 to November 2008. The increasingly volatile nature of prices is evident as is the increasing price of diesel, in comparison to petrol.
Figure 14Petrol and Diesel Prices
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The fall in November 2008 (11.8% for petrol and 8% for diesel) is the largest increase or decrease recorded over the period. By comparison in the UK28, the fall in November was also a record with a reduction of 10.8% for petrol and 7.6% for diesel. It will be noted that these decreases are less than those recorded in Ireland, albeit
28 Data from The AA. www.theaa.com
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the data collection methodology differs in the UK so direct comparisons are not entirely reliable
It is interesting to note the type of information that is published in the UK by The AA:
London recorded the highest price for unleaded at 95.8 pence per litre (ppl) followed by Northern Ireland at 95.5ppl. The North West and Yorkshire and Humberside recorded the lowest price for unleaded at 94.2ppl. Scotland recorded the highest diesel price at 109.4ppl. Yorkshire and Humberside has the cheapest diesel at 108.2ppl.
Supermarket prices for unleaded also fell over the month by 10.8ppl to 93.4ppl. The gap between supermarket prices and the UK average for unleaded has fallen to 1.5ppl.
In the UK, Experian Catalist collects fuel price data on a daily basis. The AA uses this data to publish a national average price for petrol and diesel each day. In addition, by inputting a postcode on the AA website, consumers can see prices in their local area. Data are obtained from fuel card transactions made at stations the day before. The fuel card is unbranded so it can be used in any filling station. The Agency has had initial discussions with Experian Catalist to see if a similar process could be set up in Ireland.
Figure 15 compares AA Ireland retail prices with Platts quotes, the dataset is limited in that trends are aggregated over a month but it can be seen that the trends broadly move in the same direction. The available of weekly or daily data would greatly improve the quality of the analysis and therefore the conclusions that could be made.
Figure 15AA Ireland versus Platts
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4.1.2 Website Data Data collected as user driven content from websites such as pumps.ie, while an admirable initiative for consumers, is problematical for studies of this nature in that there is no verification of user driven content. An examination of the data suggests that there are
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problems with accuracy, more so regarding names and locations of sites, rather than incorrect prices.
4.1.3 Central Statistics Office Data CollectionThere are two official sources of data in Ireland, the Central Statistics Office (CSO) and the Department of Communications, Energy and Natural Resources (DCENR).
As part of its regular inflation report, the CSO collects data from approximately 82 stations throughout the country on a monthly basis and publishes a national average price for petrol and diesel. Details of the sampling frame used are not publicly available but the robustness of the data is not in question. This information is, however, published with a significant time lapse. The latest data available at the time of writing (December 10 th) relates to October 14th. Given that prices now change twice a week the data’s usefulness is therefore extremely limited and is not an accurate reflection of the level or frequency of price changes that actually occur in the market.
4.1.4 EU Data CollectionThe EU Market Observatory for Energy publishes consumer prices and net prices (excluding duties and taxes) of petroleum products in EU member states each week. Data gathered by DCENR are provided to the EU for this purpose. These prices have attracted significant media attention in Ireland. There are a number of issues with regard to this data. An independent company, Ernst and Young, on behalf of the Irish Petroleum Industry Association, currently collects petrol and diesel prices. As mentioned in section 2, the following are members of the IPIA: Campus, ConocoPhillips, Emo Oil, Esso, Maxol, Chevron, TOP and Topaz. Only 5 oil companies are surveyed at a total of 210 sites nationally. The data may not be representative, as there is a significant portion of the market serviced by operators, such as Tesco and Applegreen, who are not IPIA members.
The prices are only collected once a month and are communicated to DCENR. DCENR then reports these figures to the Commission; the result is that the same figures are published for Ireland for 4 weeks in a row. While this system did not cause difficulties when prices were stable, it cannot accommodate the frequent price fluctuations that have been a feature of the market in more recent times. In addition, the reporting system varies across member states. The result is that comparisons across countries are not valid and can be quite misleading. Data is not used in this report for these reasons.
Both DCENR and the European Commission are aware that improved data is required as a matter of urgency. Since the Agency started this study, significant progress has been made in this regard. DCENR has met with industry representatives through the IPIA, with a view to improving data in the short term (DCENR is also aware of the need to consult other retailers). The Agency is aware from its discussions with the oil industry in recent months that this view is shared. DCENR has indicated that it is establishing a working group of industry and relevant government bodies, as a matter of priority, with a view to reviewing and improving the national price data collection system.
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As a first step towards improving the comparability of data at EU level, across member states, the European Commission has issued a questionnaire to all member states. The results will be used to design a system that will better capture comparable information. Ireland and other Member States are now actively engaging in dialogue with the Commission with a view to establishing a more transparent reporting system across the EU.
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4.2 National Consumer Agency SurveysThe NCA conducted 4 major price surveys on consecutive Fridays in November, the purpose of which was to ascertain if falling international prices were being passed on to consumers in a timely manner. The surveys also highlight the inadequacy of collecting data once a month.
An average of 302 stations were surveyed on each Friday in November by telephone and by visits from NCA inspectors. The sample frame was based on population per county; it was amended slightly to account for market share. In order to maintain consistency, where possible, the same sites were surveyed each Friday.
There are a number of caveats with the results: Prices would have changed during each Friday; this would not be reflected here, A larger share of the retailers co-operated with Agency telephone requests on the
first Friday than in subsequent surveys (the number of sites surveyed was increased in order to mitigate this but it was not possible to eliminate the effect),
A proportion of the retailers may have given incorrect prices, but there was some verification of the telephone survey by NCA Inspectors each Friday. As a result the issue is not considered to be to be significant.
Presentation of the results is split into two sections, the first looks at the data from November 7th. The second collates the results over the 4 Fridays and compares data with international Platts data.
All the prices collected on November 7st were gathered by Agency staff. This was not the case on subsequent Fridays where some data was provided directly by the oil companies. In order to obtain this data the Agency had to make concessions with regard to how the data would be used. This, in addition, to decreased cooperation means that for 14 th, 21st
and 28th November only national averages can be presented.
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Table 14 presents data for petrol for November 7th, Table 15 for diesel.
Table 14 Petrol Prices 7 November 2008
PetrolNo. of
Stations Average Max Min Mode VariationCarlow 4 109.9 112.9 106.9 109.9 6.0Cavan 4 114.9 116.9 112.9 114.9 4.0Clare 8 115.7 121.9 112.8 N/A 9.1Cork 31 112.9 117.9 107.9 113.9 10.0
Donegal 10 113.0 114.9 109.9 112.9 5.0Dublin 100 113.0 119.9 108.9 112.9 11.0Galway 14 113.4 115.9 109.9 112.9 6.0Kerry 10 111.3 113.9 109.9 109.9 4.0
Kildare 13 112.3 115.9 109.8 114.9 6.1Kilkenny 7 112.6 115.9 109.8 113.9 6.1
Laois 4 113.9 114.9 112.9 114.9 2.0Leitrim 3 112.9 113.9 112.0 N/A 1.9
Limerick 13 113.5 115.9 110.9 115.9 5.0Longford 4 109.9 110.9 108.9 109.9 2.0
Louth 6 113.9 117.9 110.9 N/A 7.0Mayo 8 112.5 115.9 109.9 110.9 6.0Meath 14 112.4 115.9 109.8 111.8 6.1
Monaghan 4 112.2 113.9 109.9 N/A 4.0Offaly 6 113.6 120.0 109.9 109.9 10.1
Roscommon 4 112.2 113.9 110.9 N/A 3.0Sligo 4 109.9 112.9 107.9 N/A 5.0
Tipperary 10 112.6 114.9 109.4 114.9 5.5Waterford 7 111.6 117.9 107.9 111.9 10.0Westmeath 8 111.1 113.9 109.5 109.9 4.4Wexford 11 112.3 117.9 109.9 109.9 8.0Wicklow 8 112.4 115.9 109.8 111.9 6.1National 315 112.8 121.9 106.9 112.9 15.0
Source: NCA
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Table 15 Diesel Prices 7 November 2008
DieselNo. of
Stations Average Max Min Mode VariationCarlow 4 111.2 111.9 109.9 111.9 2.0Cavan 4 116.2 117.9 114.9 115.9 3.0Clare 8 116.4 121.9 112.8 116.9 9.1Cork 31 113.8 116.9 108.9 113.9 8.0
Donegal 10 112.9 114.9 109.9 112.9 5.0Dublin 100 113.7 122.9 109.9 113.9 13.0Galway 14 114.3 116.9 112.9 113.9 4.0Kerry 10 111.7 113.9 109.9 109.9 4.0
Kildare 13 113.0 115.9 109.8 114.9 6.1Kilkenny 7 113.6 115.9 110.9 114.9 5.0
Laois 4 113.4 114.9 110.9 114.9 4.0Leitrim 3 112.6 112.9 112.0 112.9 0.9
Limerick 13 114.6 116.9 110.9 115.9 6.0Longford 4 112.9 113.9 110.9 113.9 3.0
Louth 6 114.7 117.9 112.9 114.9 5.0Mayo 8 112.1 115.9 109.5 110.9 6.4Meath 14 113.3 115.9 111.8 111.8 4.1
Monaghan 4 111.9 113.9 109.9 N/A 4.0Offaly 6 113.6 121.0 109.9 109.9 11.1
Roscommon 4 112.2 113.9 110.9 N/A 3.0Sligo 4 110.2 112.9 107.9 109.9 5.0
Tipperary 10 112.1 114.9 108.9 113.9 6.0Waterford 7 112.3 117.9 108.4 112.9 9.5Westmeath 8 112.0 113.9 109.9 109.9 4.0Wexford 11 112.5 117.9 109.9 112.9 8.0Wicklow 8 112.4 115.9 109.8 111.9 6.1National 315 113.4 122.9 107.9 113.9 15.0
Source: NCA
The average data is most valuable here. The data illustrates that there is significant variation across the country and also within individual counties. This is not surprising as the survey captured data from all segments of the market, from small independent retailers to large company owned stations or supermarket retailers. The variation is also the result of the particular market characteristics in each local area.
If one takes the natural assumption that each station will attempt to gain the maximum price for its products, it will charge the maximum price the local market can bear. In areas where there are a relatively large number of stations, the average price would be expected to be lower than in areas where there are few stations and where such stations would also be further away from each other. This is indeed the case in Dublin and Cork where the average is close to the national average. There are still significant variations within these counties, which reflect the situation in local or “micro” markets where choice is not so readily available.
The current survey is not detailed enough to make firm conclusions at the county or micro level. Data would need to be collected on a long-term basis by site in order get an accurate picture at that level.
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Table 16 and Table 17 present the combined results from November 7, 14, 21 and 28.
Table 16 National Results Petrol Petrol Nov-07 Nov-14 Nov-21 Nov-28
Average 112.8 110.2 107.5 102.7Max 121.9 116.9 115.9 111.9Min 106.9 103.9 99.8 96.9
Mode 112.9 109.9 109.9 99.9Variation 15.0 13.0 16.1 15.0
No. of Stations 315 293 318 282Source: NCA
The average national price fall in petrol over the month was 10.1 cent (8.9%).
Table 17 National Results Diesel Diesel Nov-07 Nov-14 Nov-21 Nov-28
Average 113.4 111.5 108.6 104.0Max 122.9 120.0 120.9 111.9Min 107.9 105.8 99.8 98.9
Mode 113.9 111.9 109.9 104.9Variation 15.0 14.2 21.1 13.0
No. of Stations 315 293 318 282Source: NCA
The average national price fall in diesel over the month was 9.4cent (8.2%).
Over the same period (there is a few days allowance given for the fact that product may not be ordered, delivered and paid for on the same day) Platts prices fell by somewhere in the region of 35% - 21% for petrol and 19%- 16% for diesel.
At first this appears to suggest that all the price reductions are not being passed onto consumers but, as stated in section 3 a large part of the pump price (69% for petrol and 54% for diesel in the example given is made up of fixed Government excise and the NORA levy). This insulates the pump price against wider variations in price. Taking this into account29 the data indicates that saving are being passed on to consumers. It should be noted, however that this is a very short time period in which to make definite conclusions. Data would need to be monitored on an ongoing basis.
In the course of discussions with oil companies the Agency has seen confidential daily data over the period of a year plotting average daily retail prices for company owned sites compared with Platts data. Again, for the most part, the trends move in the same direction.
In conclusion, at national level, data in this section suggests that price reductions in refined product are passed onto consumers in good time but the time period that is studied here is relatively short. The data is not sufficient to make this conclusion at
29 I.e. for petrol that there were reductions of 35% to 21% in approximately 26% of the product price.
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the county or local level30. Improved data collection at national and local level is required to make a more definite statement on the matter.
5 ConclusionsThe purpose of this study was twofold; firstly to ascertain if price changes at international level are passed on to consumers in good time and secondly to increase transparency relating to how the oil industry works so that consumers may better understand how the price they pay for fuel is set.
Oil companies do not buy crude oil; instead they purchase refined products such as petrol and diesel. It is therefore more relevant to compare pump prices with refined product prices (as benchmarked by Platts). The ConocoPhillips refinery does buy crude oil but their pricing strategy is also based on Platts prices for refined product. In the long term crude oil prices will match Platts, but not in the short term.
Over the period of the study, which was from 2nd January 200831 to early December 2008, wholesale and retail prices do appear to track Platts quotes closely in terms of scale, direction and timing. It is thus concluded that at the national level, prices changes are passed on the consumers in good time.
Also at a national level, the retail market shows strong evidence of competition between players. Evidence of this is the low level of profits made by oil companies, the number of stations that have closed in recent years and the increased emphasis on making profit through retail outlets attached to service stations. Based on the data currently available, it is not possible to make conclusions at a county or local level. There are some indications, however, that the market may be more competitive than the UK, such as the number of stations per capita.
In summary, the price of petrol and diesel rises because of increases in refinery prices. Ireland is a price taker due to its relatively small market size. When these prices fall, however, what forces petrol and diesel prices back down is simply competition. At a national level the available data supports this assertion. At local level, in a competitive market, one station will lower price, and will attract more volume. In turn this forces competitors to do the same. This will not be the case where there are limited numbers of stations in an area.
There are a number of issues, however, with regard to the price data that is available. Currently, price data is collected once a month. The Agency's surveys show that collecting data at this frequency is of limited use to consumers. DCENR is making progress on improving the frequency and quality of data collection through discussions with the industry. If accurate data could be sourced, it would be put on the Agency’s website and
30 In some cases, for sites with lower volume, retailers are inclined when prices fall significantly in a short
period of time to resist passing on the reduction too quickly in order to avoid loss on what they have in stock.
31 The reason for choosing a relatively short period of time was to simplify the analysis as much as possible. A longer-term study would have required correcting for changing distribution costs, longer term inflation etc.
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made available in a format that could be used by newspapers for those without Internet access. Consumers could then compare these averages with the advertised prices at stations to see if they are being offered a "fair price".
As highlighted previously, current data availability in the Irish market is insufficient to analyse price changes at the local level with any degree of certainty. There is scope for enhancement in analysis and reporting, and improvements in this area could serve to better inform consumers of general trends in petrol and diesel prices and to place a sustained spotlight on the competitive environment in this important sector.
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Annex 1 Investigations
InvestigationsAs mentioned in section 1, there is a widely held view that when the price of crude oil increases, petrol and diesel prices at the pump rise quickly, but when the price of crude oil decreases, petrol and diesel prices are slow to fall. Prices in this case are sometimes referred to as being “sticky”.
This is a view, which is put forward in many countries throughout the world. This section details the investigations from a number of countries.
USAOver the past several years, the Energy Information Administration (EIA)32 has extensively studied the relationships between wholesale and retail markets for transportation fuels. In the course of the analysis, EIA found that the relationships between spot and retail prices are consistent and predictable, to such an extent that changes in spot prices can be used to forecast subsequent changes in retail prices for the appropriate regions.
AustriaThe Competition Authority in Austria33 built up (with the help of auto-touring associations) a huge data bank covering on average 1700 (out of approximately 2500) gasoline stations over a period of five years. The result of the econometric estimations pointed to a lagged response (of approximately 2 days) of Austrian prices if Platts notations go down in comparison to the reaction to an upward movement of Platts notations.
PortugalA Report by the Competition Authority34 on the Fuel Market in Portugal found that the main elements making up the recommended pump price of 95-octane petrol are: tax at around 59.2%; the ex-refinery cost, at around 31.4%; and the retail component at around 8%. Storage and transport account for 1.4%.
In the case of diesel, the main elements making up the recommended pump price are:tax at around 47%; the ex-refinery cost, at around 42.2%; and the retail component at around 9.2%. Storage and transport account for 1.6%.
When the tax element is factored out, around 80% of the recommended pump price stems from the ex-refinery price, with the logistical element (storage and transport) not accounting for more than 3.5%.32 http://www.eia.doe.gov/pub/oil_gas/petroleum/feature_articles/2003/gasolinepass/gasolinepass.htm 33 http://www.bwb.gv.at/BWB/English/annual_report_2006.htm 34 http://www.concorrencia.pt/en/publications/competition.asp
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In terms of the move in recommended pump prices (excluding tax), ex-refinery prices in Portugal reflect the Rotterdam CIF price (Platts NWE platform). In addition, as regards petrol, the quotations move parallel to the New York price.
In the same way, the move in recommended pump prices for 95-octane petrol and for diesel (excluding tax) in the first months of 2008 reflect the move in the ex-refinery price, since the logistical and retail costs were constant during the period.
Other Studies The Polish and Spanish Competition Authorities are also conducting investigations, as is the European Commission35.
The Commission’s initial results have found that consumer prices so not react more rapidly to positive price shocks than negative ones. The EU study is based on Oil Bulletin data however, which, as discussed is not accurate for all member states.
35 The report is not available on line.
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