Another eventful year in the retail fuel market

Independents gain as supermarkets drop share in their fuel segment.

By David Burton.

In the retail fuel market, an eventful 2015 saw independents pick up market share from the supermarket petrol chains.

Woolworths, which has issues with its BIG W and Masters divisions, can take some solace from the fact that its shop sales are up, offsetting fuel declines.

Woolworths also has a valid reason for lower volumes, as it has a restructured arrangement with Caltex that means it no longer records fuel volumes for some sites previously in the Woolworths-Caltex alliance.

Coles has also lost fuel share to independents, having seen its share of new site openings continue to rise, but at nowhere near the scale of openings by independents.

Like Woolworths, however, Coles can boast stronger shop sales to offset part of the fuel volume decline.

Independents have been the big winners and the change to a more restrictive supermarket shopper-docket discount regime has made them more competitive.

ACCC petrol monitoring update

The Australian Competition and Consumer Commission June quarter report identified changes to the fuel price cycle, noting that over the two years to June 2015 the number of price cycles per quarter in Sydney, Melbourne, Brisbane and Adelaide declined significantly.

ACCC monitoring found that, in these cities, around half the number of price cycles occurred in 2014-15 compared with the previous corresponding period.

In May, the commission concluded an investigation into whether anti-competitive agreements existed between fuel retailers in Armidale, NSW. It found no evidence of cartel conduct during the course of the investigation.

The ACCC, which hosted a meeting of the Fuel Consultative Committee (FCC) in May 2015, said the process increased its understanding of fuel industry issues and assisted in its role on issues related to competition and consumer protection in the fuel industry.

The meeting also provided the opportunity  for the commission to detail its new fuel monitoring arrangements and discuss recent metropolitan and regional fuel price movements.

The FCC is one of a number of such bodies run under the auspices of the ACCC. Membership includes the major refiners and retailers, motoring bodies and the Australian Institute of Petroleum, Biofuels Association of Australia and Australasian Convenience & Petroleum Marketers Association.

Contra view on fuel supplies

Earlier in the year, the Department of Industry, Innovation and Science released the Energy white paper (EWP).

In terms of transport fuels, the EWP noted that Australia imported around 80 per cent of the crude oil it refines into liquid fuels and around 44 per cent of the refined liquid fuels used in Australia.

According to the EWP, the country exports around 75 per cent of its oil production, most of which occurs off the north-west coast of Western Australia.

The EWP included a positive comment on transport fuel supply, with the finding that the Government considered supply reliability would be maintained because of the depth, liquidity and diversity of international crude and fuel markets, combined with the existing Australian stockholding and at-sea tanker arrangements of commercial companies.

However, it found that despite the view on security of supply and Australia’s longstanding contribution to global energy security as a major net energy exporter, the country’s current oil stockholdings did not meet its obligations under the International Energy Agency treaty.

Operating refineries and fuel security

In June this year, BP ceased production at its Bulwer Island refinery in Brisbane, as announced in April 2014, and BP and Caltex now have a supply agreement under which all of BP’s requirements for diesel and petrol in south Queensland will come from Caltex.

BP also launched a jet-fuel import facility at Bulwer Island. According to the latest ACCC fuel monitoring report, the closure of BP’s Brisbane refinery resulted in a decrease in refining capacity in Australia of 5,910 megalitres a year. This is roughly an 18 per cent drop in local production.

Four operating refineries remain in Australia: Kwinana in Perth (BP), Lytton in Brisbane (Caltex), Altona in Melbourne (Mobil) and Corio in Geelong (Viva).

The Viva Energy refinery in Geelong will continue to refine crude spirit, as noted by CEO Scott Wyatt as the company celebrated its first year of operation following its acquisition of the Shell downstream business with a licence to use the Shell brand name.

“At the Geelong refinery, Viva has commenced the first of two major processing unit turnarounds and has deployed projects to improve distribution of fuels from Geelong to customers in Victoria by more than 25 per cent,” he said.

“We are also assessing the construction of a new crude storage tank and, over the next three years, expect to spend around $300 million to help secure a future for  manufacturing in Australia and more than 750 local jobs.

“We are spending more than $150 million to upgrade our fuel terminal in Sydney and have plans to further improve infrastructure at other locations to meet growing customer demands. The construction of a new bulk lubricant import terminal in Brisbane is a good example of this.”

While occasional mainstream media reports have referred to concern from motoring organisations and others regarding Australia’s fuel security, no major issues over the past three years have emerged as refineries have been decommissioned and converted to import and distribution facilities.

Investments in infrastructure, such as the Geelong upgrades, will be beneficial to longterms efficiencies in the supply chain.

Viva Energy operates more than 20 import terminals and depots around Australia and the company says it is committed to increasing storage capacity and improving supply security.

Ethanol: a lost cause?

Biofuels were supposed to be the future, but while one Australian state considers imposing an ethanol mandate, another is failing to reach the targeted level of fuel volumes generated from the sale of E10.

Australia’s three producers of ethanol began operations under the impression that the government of the day would push for the ethanol-blended fuel share of the market to increase.

However, NSW struggles to meet the mandated six per cent E10 proportion of fuel sales and many sites do not provide the option at the bowser.

Meanwhile, the Biofuels Association of Australia (BAA) said it broadly supported a mandate on biofuels in Queensland.

The BAA said it backed the proposal to set the initial ethanol mandate level at three per cent of the regular unleaded petrol (RULP) volume in 2016 and a biodiesel mandate of 0.5 per cent in relation to the total volume of biodiesel sold.

The association believes the eventual  adoption by the Queensland government of a mandated ethanol and biodiesel volume in fuel will assist the state in creating value adding options and providing a diversified income for farmers.

The move to mandated ethanol volumes would also improve air quality, the BAA said, by using oxygenated fuels – resulting in more complete combustion, thereby lowering state health-cost expenditure Pointedly, the BAA said it would take some important first steps in improving Queensland’s fuel security by developing alternative fuels in the wake of the announcements of oil-refining closures.

“The fuel market cannot be considered to be a free market, because the flow of fuel to the consumer is controlled in the main by the major oil companies,” BAA CEO Gavin Hughes said.

“As the major oil companies are not involved in the manufacture of biofuels, they have no commercial incentive to offer cleaner biofuels products to the market, because they do not derive profits from the whole value chain, as they do when selling petroleum.

Simply asking oil companies to sell biofuels is akin to asking a tobacconist to sell a Nicabate- or Nicorette-type product.”

The BAA envisages that the mandated level of ethanol in Queensland will increase over time in conjunction with growth in production capacity in the state.

“A three per cent RULP mandate will provide consumers with genuine choice as the product will need to be available at many more retail service stations in Queensland,” Mr Hughes said.

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